Problem:
Rise Against Corporation is comparing two different capital structures: an all-equity plan (Plan I) and a levered plan (Plan II). Under Plan I, the company would have 170,000 shares of stock outstanding. Under Plan II, there would be 120,000 shares of stock outstanding and $1.60 million in debt outstanding. The interest rate on the debt is 8 percent, and there are no taxes.
Required:
Question 1: If EBIT is $525,000, what is the EPS for each plan?
Question 2: If EBIT is $775,000, what is the EPS for each plan?
Question 3: What is the break-even EBIT?
Explain in detail and also show all work.